Time to take stock? Why are savers loathe to invest?

WHEN it comes to finding a home for your hard--earned cash, it can be tempting to squirrel all of it away in savings accounts. But while you may like the apparent safety they offer, with interest rates at a record low it might be time to consider all of your options, including the stock market.

The latest inflation figures showed the consumer price index (CPI) had risen from 2.7 per cent to 2.9 per cent during June, meaning a basic--rate taxpayer now needs to find a savings account paying 3.63 per cent interest to beat inflation, while a higher--rate taxpayer needs to get 4.83 per cent.

Findings from MoneyFacts show that of the 817 individual savings accounts (Isas) and non--Isa accounts on the market today, there are none that taxpayers can choose to both negate tax and inflation.

Given this poor deal on cash, experts say that in the long--term savers simply cannot afford to ignore the stock market. "While you may prefer the apparent stability of cash, it is important to appreciate the difference between keeping some cash available for short--term needs and investing over the long term," says Patrick Connolly from adviser Chase de Vere. "Investing in the stock market can have its ups and downs but historically over the long term equities have performed better than cash."

The problem is, nearly two thirds of savers are not putting their money in anything but cash and are staying away from investing on the stock markets, according to advice site Unbiased.co.uk.

So why are people reluctant to dabble in the stock market? Unbiased found that of those who have their savings in cash, two in five think they don't have enough money to invest, nearly a third feel investing is too risky, while one in five worries about making the wrong choices.

Research also reveals that many of those who have not yet invested say the process is too complicated; they worry about knowing when to buy and sell their investments, what represents the best value for money and are confused by the terminology.

More encouragingly, Unbiased found that overall nearly two thirds of cash savers say they would consider investing and almost a fifth said their first investment would be stocks and shares, including stocks-and--shares Isas.

"There is a clear appetite from cash savers to invest their money, but key factors such as knowing how and when to buy and sell are putting people off," says Karen Barrett from Unbiased.co.uk. "The potential risk factor also seems to be deterring savers but in a balanced portfolio, adding an element of risk can provide opportunities for returns."

Here are some tips for first--time investors from professional advisers. Hayley North, from Rose and North, says don't over--stretch yourself to begin with: "Start small and build up gradually as you get comfortable with the fluctuation."

Danny Cox from Hargreaves Lansdown says one of the easiest ways to take the plunge is by starting a regular savings plan. "You can begin by investing from as little as £50 per month," he says. "Almost anyone can build a sizeable pot this way by taking a long--term view and accepting the inevitable ups and downs."

Investing in the stock market over the long term equities have performed better than cash

For example, someone who began investing £150 a month in a popular UK fund in 1998 would have invested just over £45,000 in total and would now have an investment worth £276,261, according to Cox. "But note that past performance is not a guide to future returns," he warns. "Investments can fall in value as well as rise so you could get back less than you invest."

Over the past 12 months many funds have enjoyed double--digit growth while several equity income funds have beaten the returns on cash deposits, while growing the capital.

Claire Walsh, from Pavilion Financial Services, urges first--time investors to diversify across different markets and asset classes to reduce risk, while David Crozier, from Navigator Financial Planning, warns people to avoid falling for "flavour of the month" investments such as gold.